Latest news with #MoneyAccountsforGrowthandAdvancement
The Hill
28-05-2025
- Business
- The Hill
What to know about the $1,000-per-child ‘Trump accounts'
(NEXSTAR) – Among the 1,000-plus pages of President Trump's tax bill is a proposal that would put federal money into accounts for babies born during his second term. Initially dubbed 'Money Accounts for Growth and Advancement' (MAGA), the savings proposal was recently renamed 'Trump account.' Sen. Ted Cruz (R-TX), who is credited with coming up with the idea, calls the $1,000 investments 'transformative' for future generations. 'There are many Americans who don't own stocks or bonds, are not invested in the market, and may not feel particularly invested in the American free enterprise system. This will give everyone a stake,' Cruz told Semafor. The idea itself, to give babies a financial head start when it comes to education, homeownership and financial success, is not new, however. A similar plan has been implemented in Connecticut and another proposed by Sen. Cory Booker (D-NJ). Under Trump's 'big beautiful' bill, qualifying babies born between Jan. 1, 2025 and Jan. 1, 2029 would receive $1,000 in a Trump account opened by their parents or the Treasury. To be eligible, the newborns would have to be U.S. citizens and have a Social Security number. A parent must also provide a Social Security number to show they are eligible to work, according to the bill. 'If the Secretary of Treasury determines that an eligible individual does not have an accountopened for them by the first tax return where the child is claimed as a qualifying child, theSecretary shall establish an account on the child's behalf, taking into account, to the extentpossible, the parents preferred custodian and investment fund,' the bill reads. 'Parents will be provided the option to opt out of the account.' Families would have the option to add up to $5,000 a year, with the account holder unable to take distributions before age 18. Contributions from tax-exempt entities, such as private-foundations, aren't subject to the $5,000 cap. At the age of 18, additional investments would be capped, but the named account holder would be able to access up to 50% of the money to pay for higher education, training and first-time home purchases. At age 30, account holders would have access to the full balance for any purpose. The money would be invested in a U.S. equity index fund and taxed as capital gains if spent on qualified expenses, according to retirement publication Plan Adviser. Withdrawal of the money for non-qualified purchases would be penalized and taxed as ordinary income. Michael Piwowar and Robert Shapiro, of the Milken Institute, published a paper analyzing the growth prospects of such an account and found that, on average, the $1,000 investment would grow to $8,000 after 20 years, $69,000 after 40 years and $574,000 after 60 years. A number of experts reacted favorably to the creation of the accounts, but questioned the structure. 'The MAGA accounts proposal is an encouraging step—but it misses a critical piece,' Zach Buchwald, CEO of Russell Investments, told Plan Adviser in a statement earlier this month. 'If we want true financial security, we need long-term solutions that include retirement. Let's give every young American a chance to build real wealth—not just a starter fund.' Others asked why families would put money that has already been taxed into an account that doesn't allow you to take it out tax-free, when there are options such as the 529 college savings plan, or Roth IRA that would allow them to do just that. 'The giving kids money aspect is generally good,' Zach Teutsch, a managing partner at Values Added Financial, told Yahoo Finance, but called the account structure 'ill-considered' since families who choose to fund a Trump account over a tax-advantaged 529 plan would seemingly be 'shockingly sure' their child wouldn't be going to college. Meantime, Trump accounts will only become a reality if the administration's 'big, beautiful bill' makes it through the Senate, which could involve a rewriting process in order for the package to garner 51 votes. Should the bill pass without changes to Trump accounts, financial writer Jim Wang has this advice: 'You might as well take the free $1,000 that comes with automatic enrollment of a Trump Account but there's little reason to contribute more toward the account as the child ages. For education expenses, you're better off contributing into a 529 plan.' The Associated Press contributed to this report.
Yahoo
28-05-2025
- Business
- Yahoo
Advisors Weigh In on Trump's ‘Big, Beautiful' Bill
At more than 1,000 pages long, President Trump's tax cut bill is certainly big … but beauty may be in the eye of the beholder. Passed by the House last week, the proposed legislation now heads to the Senate, leaving financial advisors in a holding pattern as they assess the potential impacts. While some tax saving aspects could benefit clients, advisors said other provisions could negatively impact the economy at large. What we do know is the bill is far from finalized. 'To make any drastic portfolio changes based on a bill that struggled to make it out of the House is at best a risky trade, and at worst a speculative gamble,' said Sean Dann, director of investment research at Marshall Financial. This story was originally published on The Daily Upside. To receive financial advisor news, market insights, and practice management essentials, subscribe to our free Advisor Upside newsletter. The Congressional Budget Office projects the bill may add $3.8 trillion to the national deficit over the next decade — a key concern for the bond market. As of Friday, yields on 20- and 30-year Treasurys were trading above 5%, signaling growing investor concern over US debt. That market pressure could force policymakers to pull back spending, similar to the bond vigilantes of the Clinton era, said Mark Heppenstall, CIO at Penn Mutual Asset Management. 'The higher interest rates go, the less opportunity we have to fund things like tax cuts,' he said. 'Eventually, the costs become too burdensome.' But it's not just the tax bill driving up yields. Inflation, tariff uncertainty, and Moody's recent downgrade of the US credit rating are also contributing, Heppenstall said. 'The whole idea of US exceptionalism is beginning to unwind, and we're seeing a lot of stock and bond markets outperform US assets.' Please, Pass the SALT. Another major highlight for clients is the increase in the state and local tax (SALT) deduction. Highlights from the proposal include: Raising the cap from $10,000 to $40,000, which would primarily benefit residents in high-tax states like New York and California, advisors said. A proposed increase in the estate and gift tax exemption would raise it from $5 million to $15 million in 2026. 'Having a solid number to plan with helps a lot of high-net-worth individuals plan for their heirs more efficiently,' said Matthew Saneholtz, CIO at Tobias Financial Advisors. A novel program in the bill is the Money Accounts for Growth and Advancement, or MAGA accounts, which would provide children trusts seeded with $1,000 from the federal government. Parents could contribute up to $5,000 per year, which will then be invested in US stocks. The funds can go toward expenses, including college tuition, small business loans, and first-time home purchases. The accounts' eventual value will depend on how they stack up against more traditional savings vehicles like Roth IRAs, 529 plans, and Uniform Transfers to Minors Act accounts, said Catherine Valega, a CFP with Green Bee Advisory. 'Poor families will likely find themselves unable to add any funds themselves,' she said. 'This will benefit mostly the wealthy who already have enough options.' The post Advisors Weigh In on Trump's 'Big, Beautiful' Bill appeared first on The Daily Upside.
Yahoo
23-05-2025
- Business
- Yahoo
GOP Tax Bill Touts 'Trump Accounts' Giving $1,000 To Newborns — But Experts Say It Wouldn't Do Much For Parents
As the One Big Beautiful Bill Act makes its way to the Senate, one piece of the proposed bill is still stirring heated debate among parents and caregivers. This part of the proposal aims to grant every newborn in the United States a $1,000 government-funded savings account — framed as an investment in the future of America's children. Supporters claim the initiative, backed by prominent conservative lawmakers, would promote financial independence and reduce long-term reliance on government aid. But economic experts and policy analysts are sounding the alarm, warning that the bill could deepen inequality, strain federal resources and divert attention from more effective ways to help lower-income children. 'As a parent I just have to laugh,' said Rebecca Schroeder from Florida. 'This is not what we want or need, nor what we asked for. We need real policy that makes having children affordable and equitable, not this overly patriotic political move. It feels icky to me.' Under the new bill, children born between Jan. 1, 2025, and Jan. 1, 2029, would receive the $1,000 deposit in an account, which would be invested in financial markets. Parents and loved ones can contribute to these accounts as well. Once the children are grown, they could withdraw the money to use for education, the down payment on a home, or capital to start a business. Previously known as 'Money Accounts for Growth and Advancement' or 'MAGA Accounts' — the Trump Accounts are not unlike a 529 college savings plan, explains Ted Callahan, a financial tax analyst with Intuit. 'The earnings on these accounts grow tax-deferred, which isn't all that different from a typical brokerage account,' he said. 'But other similar options to these accounts already exist.' Some of these already existing accounts include Coverdell Education Savings Account (ESA). Like a 529, it offers tax-free growth and tax-free withdrawals for qualified education expenses, including both K-12 and higher education. Another alternative is a custodial account, such as a UGMA (Uniform Gifts to Minors Act) or UTMA (Uniform Transfers to Minors Act) account. These accounts don't have contribution limits, though large contributions may be subject to gift taxes. Unlike 529s and ESAs, custodial accounts can be used for any purpose that benefits the child, not just education. 'Each account type has its own pros and cons, so the right choice depends on your savings goals, how much control you want over the funds, and your tax situation,' said Callahan. If the bill passes as drafted, parents would be able to contribute up to $5,000 a year to the Trump Account and the balance would be invested in a diversified fund that tracks the U.S. stock index. Sen. Ted Cruz (R-Texas) who spearheaded the effort, said the accounts give children 'the miracle of the compound growth, the ability to accumulate wealth, which is transformational.' This comes on the heels of the Trump administration considering a $5,000 'baby bonus' gift to any woman who gives birth, which was lambasted by parents, commentators and policymakers alike for being a shortsighted bandaid for the true mental and financial stress parents are under. Though 'baby bond'-style legislation exists in numerous states already, tax experts are wary of this federal iteration. Callahan says he understands the goal behind the accounts, but doesn't necessarily see them as more or less beneficial than what already exists. This is because people can only contribute post-tax income to the accounts, and gains in the accounts would also be taxed when money was withdrawn. 'This makes this just a regular investment account with no real tax advantage,' said Callahan. 'If you want to really help parents, you would almost need to have an annual amount deposited in the accounts that were tax exempt, and that amount would need to be very significant given the increase in the cost of living, and then educate children in schools about these accounts once they are old enough so they can understand how investing works.' In the end, while the Trump Accounts were introduced with the promise of supporting American families, both tax experts and many parents remain unconvinced of their true value. Critics point out that the one-time payment structure falls short of addressing long-term financial needs like child care, health care, or education. At the same time, analysts argue that the broader tax plan surrounding the accounts primarily benefits high-income earners, with limited and temporary relief for middle- and lower-income households. As the policy takes effect, its real-world impact will ultimately determine whether it meets its stated goals — or adds to a growing divide in how tax benefits are distributed. 'We just want quality healthcare and to know that when we send our son to school he's safe,' said Schroeder. 'These accounts are not the answer, and I really wish they'd spend more time focusing on what matters to parents.' Donald Trump Openly Selling Access To Those Who Put The Most Cash In His Pocket Trump's Post About Taylor Swift Is So Immature, We Needed Child Psychologists To Explain What If We Just Gave People Enough Money To Live On?
CNBC
22-05-2025
- Business
- CNBC
Tax bill includes $1,000 baby bonus in 'Trump Accounts' — here's who is eligible
In a vote early Thursday, House members approved President Donald Trump's "big, beautiful" tax bill, including a new savings account for children with a one-time deposit of $1,000 from the federal government. Under the proposal, "Trump Accounts" — previously known as "Money Accounts for Growth and Advancement" or "MAGA Accounts" — can later be used for education expenses or credentials, the down payment on a first home or as capital to start a small business. The final version of the bill that House Republicans passed Thursday could still face pushback in the Senate. More from Personal Finance:House Republican tax bill passes 'SALT' deduction cap of $40,000SNAP benefits face 'biggest cut in the program's history'GOP aims to axe EV, green tax credits If the bill passes as drafted, parents will be able to contribute up to $5,000 a year and the balance will be invested in a diversified fund that tracks a U.S.-stock index. Sen. Ted Cruz, R-Texas, who spearheaded the effort, said the accounts give children "the miracle of the compound growth, the ability to accumulate wealth, which is transformational." Not unlike a 529 college savings plan, the Trump Account has a tax incentive to getting a jump start on saving. Earnings grow tax-deferred, and qualified withdrawals are taxed at the long-term capital-gains rate. "This isn't all that different from the tax treatment you would get from a typical brokerage account," said Sam Taube, NerdWallet's lead investing writer. Other similar options already exist. Custodial brokerage accounts — often called a UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gift to Minors Act) account — also allow parents to transfer bank deposits, stocks, bonds and mutual funds to minors. But in that case, investment income, including dividends and interest, could be subject to a "kiddie tax" charged to the parents at their rate. With 529 accounts, alternatively, earnings grow on a tax-advantaged basis, and when a child withdraws the money, it is tax-free if the funds are used for qualified education expenses, such as tuition, fees, books, and room and board. "We continue to believe that 529 plans provide tremendous benefits as a tax-advantaged savings vehicle for American families, with a proven nearly 30-year track record," said Chris McGee, chair of the College Savings Foundation, a nonprofit that provides public policy support for 529 plans. Although there are more limitations on what 529 funds can be applied to compared to Trump Accounts, restrictions have loosened in recent years to include continuing education classes, apprenticeship programs and student loan payments. Plus, 529 accounts have much higher contribution limits. This year, individuals can gift up to $19,000, or up to $38,000 if you're married and file taxes jointly, per child. "For most parents, like myself with teens, the 529 college savings plan is superior if you're focused on paying for higher education because of the federal tax-free growth," said Winnie Sun, co-founder and managing director of Sun Group Wealth Partners, based in Irvine, California. "Also, now, the 529 is becoming more flexible with its' ability to have unused funds rolled into a Roth IRA in the future for retirement," said Sun, a member of CNBC's Financial Advisor Council. As of 2024, families can roll over unused 529 funds to the account beneficiary's Roth individual retirement account, without triggering income taxes or penalties, so long as they meet certain requirements. Experts say the biggest benefit of Trump Accounts is the seed money for all children born between Jan. 1, 2025, and Jan. 1, 2029, funded by the Department of the Treasury. There are no income requirements and everyone is eligible, as long as the child is a U.S. citizen, and both parents have Social Security numbers. Although some states, including Connecticut and Colorado, already offer a type of "baby bonds" program for parents, the Trump Accounts — along with a bigger child tax credit proposed in the budget bill — "could certainly help a lot of families at a lot of different income levels," said NerdWallet's Taube. Further, these accounts are not mutually exclusive from other tax-advantaged accounts, like 529 plans, he added, "so parents could take advantage of both." Still, for parents weighing their options for early investment vehicles, "my recommendation would be, if you're focused on college savings, talk to an advisor and start with the 529 plan first," Sun said.
The Hill
22-05-2025
- Business
- The Hill
These are the key last-minute changes to Trump's ‘big, beautiful bill'
House GOP leadership has agreed to a series of last-minute changes to its sweeping tax and spending package designed to win over holdouts. The manager's amendment includes changes to the state and local tax (SALT) deduction cap and proposed Medicaid reforms, along with other proposals, as leadership works to satisfy various factions of the GOP conference to lock down sufficient support to secure its passage. Here are some of the changes made to the bill before leadership brings it to the House floor. The updated bill outlines a more aggressive timeline for implementing new work requirements for Medicaid recipients. In the original House version of Trump's 'big, beautiful bill,' Republicans called for the new requirements to take effect in early 2029. However, the changes call for the requirements to be implemented no later than the end of next year. Conservatives pressed for the earlier date as part of their push to increase savings in the bill. Other changes are also aimed at disincentivizing Medicaid expansion. The bill initially called for state and local tax (SALT) deduction cap to be raised from $10,000 to $30,000 for those earning up to $400,000. The updated plan puts the cap at $40,000 for people making up to $500,000. The SALT deduction allows taxpayers — especially those in higher-tax blue states — to deduct part of their regional taxes from their federal tax bill. GOP moderates from high-tax blue states pressured leadership for more relief for their constituents — and had threatened to tank the bill if they didn't get it. The new version speeds up the rollback of tax credits for climate-friendly energy sources — handing a win to hardliners who lamented that they were allowed to remain on the books for too long. The prior iteration phased out the credit for projects that began producing electricity after 2028, with partial credit available up until 2032. Under the new version, there is no partial credit, and any projects that begin producing electricity after 2028 will not be eligible at all. Projects also need to start construction within 60 days of the bill's enactment. However, a carveout is added for nuclear power which will only need to begin construction rather than begin producing electricity by the end of 2028 to receive the tax credit. While the original bill text calls for blocking Medicaid funding for gender transition procedures for minors, the changes unveiled Wednesday night would extend that prohibition to adults as well. The changes would also change the name of proposed 'Money Accounts for Growth and Advancement,' or 'MAGA accounts,' in the original text to 'Trump accounts.' Republicans have described the proposals as a type of savings account partly aimed at incentivizing education. The proposal also calls for the government to contribute $1,000 per child into eligible accounts for children born between January 1, 2024, and December 31, 2028. Republicans have also stripped a controversial provision added during the amendment process that would have allowed the sale of certain public lands in Utah and Nevada. The updated text also strips out provisions that would have required additional Arctic drilling opportunities in the National Petroleum Reserve-Alaska and the approval of an Alaska mining road. The changes include the elimination of a proposal that members on both sides criticized as targeting federal employees' earned benefits. The bill had initially proposed calculating the federal workers pension formula based on employees' five top years of earnings compared to the three years under current law. Rep. Mike Turner (R-Ohio) had previously spoken out against the proposal. 'Making changes to pensions and retirement benefits in the middle of someone's employment is wrong,' he said in a quote obtained by GovExec. 'Changing the rules, especially when someone has already been vested in their benefits, is wrong. Employee benefits are not a gift, they're earned.' 'I understand the need for reform, and we can certainly have changes occur for the benefits of new hires, but for current employees, to change the rules for people in the middle of the game is just wrong.'
